Why Professional Licenses Are a Barrier to Growth

By Robert E. Litan

Occupational licensing in America is a testament to how special interests can maintain -- if not advance further -- obsolete regulatory frameworks
regardless of current economic conditions or their effect on the greater society. Originated to ensure a certain level of quality in covered services --
most notably medicine and law -- occupational licensing has since become a vehicle by which incumbent service providers stifle competition, limit
innovation and increase costs.

In 1970, about 10 percent of Americans needed a license to offer their services. Today, that figure stands at about 30 percent.

If something about this trend doesn't bother you, it should. Because the more licenses are required to work or open a business, the harder it will be
for America to return to pre-recession levels of employment. Equally important, it will be harder for firms with new business models aimed at offering
cheaper services without compromising quality to get started and grow.

A good example of this is retail clinics (such as CVS's "MinuteClinics") that have sprung up in pharmacies and other stores to handle routine medical
ailments and, in some instances, write prescriptions. Such operations exist in a majority of the states -- but in around half the states their growth is
limited by regulations that prevent nurse practitioners (who provide most of the care) from treating patients outside of a doctor's supervision. This
is despite studies that show that nurse practitioners' performance on routine matters is at least comparable to doctors'.

Then there are tight state restrictions on the "unauthorized practice of law" that keep potentially disruptive Internet-based companies like LegalZoom
from becoming full-service providers of cheap legal services to the masses, while compelling many law students who only want to practice in a limited
field -- say, divorce law or handling auto accidents -- to attend and pay for three years of law school, when probably one or possible two would do just
fine. In the end, as a recent Brookings book points, the nation pays at least $10 billion more in legal service costs than we need to.

The standard "justification" for licensing is that the imprimatur of the state and the compulsory training that goes along with it is required to
protect consumers. But in more cases than not, licensing today better serves incumbent service providers by keeping potential competitors from entering
the market and, thereby, market prices for their services artificially high. In 2009, Michigan passed a law to begin licensing massage therapists. As
The Wall Street Journalreports, the law requires new entrants to complete 500 hours of training and pass a test before receiving a license,
while grandfathering in most current masseuses. And a National Bureau of Economic Research paper by Morris Kleiner of the University of Minnesota and
Alan Krueger of Princeton University relates that licensed service providers earn about 15 percent more than unlicensed providers in other states.

The consumer protection explanation is surely too broad. Nurse practitioners or specialized paralegals can handle routine medical and legal problems
quite competently. And it's impossible to take the consumer protection justification seriously for many of the over 800 occupations that require a
license in at least one state, including fortune tellers, florists, hair braiders, and movie projector operators

In principle, the federal government could stop all this nonsense by preempting much state law governing licensing. But that's unlikely to happen any
time soon.

Fortunately, there is a better alternative, as a recent Kauffman Foundation report,License to Grow, outlines. Why not simply enact a federal
law that requires states to recognize licenses from other states much as is now the case with drivers' licenses. This would mean that if you can
practice law or medicine in Arizona, you can have a passport to do so anywhere else in the country. This wouldn't necessarily eliminate the interior
designer licenses and their equivalents, but it would greatly enhance mobility of professionals while allowing nationwide chains and franchises to more
easily develop.

Consumer protection from shoddy service providers can be provided through current state tort laws and consumer protection bureaus, but primarily
through market forces, without the need for many anti-competitive licensing rules. If consumers valued them, there would also still be a market for
certifications, and thus the training that consumers desire, not what professional societies deem necessary as a way to shelter their own members from
competition.

What better time than now to start eliminating some of the self-inflicted -- and self-interested -- barriers to job creation and service innovation?